Clockwise from top left: Phebe N. Novakovic, Wes Bush, Jim McNerney and Marillyn Hewson (Mark Wilson / Getty Images)
WASHINGTON — Large US defense companies reported strong earnings last week, with some recording solid commercial business as military-related work slows.
But the positive earnings were met with a grim prediction for the defense industry — particularly smaller companies — by former BAE Systems Inc. President and CEO Linda Hudson that a storm is coming.
“From a big company perspective, if you’re a shareholder, you’re delighted with what’s going on right now,” Hudson said at an April 23 conference sponsored by Bloomberg. “You see record share prices, you see earnings growth that is astounding, largely as a result of reducing head count and cutting cost.”
But Hudson said she believes this period of “extraordinary financial performance is limited,” and smaller companies are having a more difficult time weathering the decline in defense spending than larger ones.
“I think we’re on a precipice of an industry readjustment like we saw in the last major downturn,” she said.
Hudson predicted the downturn would start with second- and third-tier suppliers, “where many will go away, many will consolidate or merge or come up with some other business arrangement.
“I think without some significant change, we’re not that far away from seeing some similar actions at the tier-one level as well,” Hudson said.
In its reported earnings last week, Lockheed Martin’s net sales decreased by 4 percent to $10.7 billion, but its net earnings increased 23 percent to $933 million, or $2.87 per diluted share, compared with $761 million, or $2.33 per diluted share, in the first quarter of 2013, the company said in an April 22 statement.
“The strong earnings and operating cash delivered in the first quarter are a result of our continued focus on program performance, affordability and meeting commitments to our customers,” said Marillyn Hewson, Lockheed’s chairman, president and CEO.
Boeing raised its profit outlook for 2014 as demand for its commercial airliners is rising.
A sharp rise in pension costs from a change in retirement plans offset Boeing’s robust commercial aircraft deliveries as airlines seek to renew aging fleets with more fuel-efficient jetliners.
Boeing posted a net profit in the first quarter of $965 million, down 12.7 percent from a year ago but nevertheless better than analysts expected.
Core earnings per share came in at $1.76, 3 cents higher than a year ago and well above the $1.56 estimate. Boeing posted an 8.3 percent rise in revenues to $20.47 billion, and operating cash flow soared 112 percent to $1.1 billion.
“Our outlook for the full year remains positive on the strength of demand for our fuel-efficient new commercial airplanes, our solid position in global defense, space and security markets,” and the company’s focus on improving financial and operational strength, Boeing Chairman and Chief Executive Jim McNerney said in an April 23 statement.
Northrop Grumman reported an 18 percent first quarter net earnings increase to $579 million, or $2.63 per diluted share, compared with $489 million, or $2.03 per diluted share, in the first quarter of 2013. First quarter sales totaled $5.8 billion.
“First quarter results reflect another solid performance by our team and a good start to the year,” said Wes Bush, chairman, CEO and president, in an April 23 statement. “Our sustained performance, coupled with share repurchases, drove higher earnings per share for the quarter.”
General Dynamics reported first quarter 2014 net earnings of $595 million, or $1.71 per diluted share, compared with 2013 first quarter net earnings of $571 million, or $1.62 per diluted share. First quarter 2014 revenues were $7.3 billion.
“General Dynamics’ first quarter operating performance was strong, demonstrated by 11.9 percent operating margins,” said Phebe Novakovic, chairman and CEO, in an April 23 statement.
Raytheon announced net sales of $5.5 billion in the first quarter, an earnings per share from continuing operations of $1.87 and an adjusted earning per share of $1.43.
“Raytheon delivered solid operating performance in the first quarter,” said Thomas Kennedy, the company’s CEO. ■
Agence France-Presse contributed to this report.